The Budget Presentation: Dues to increase $140 by 2012
Purpose: To fund the operations of Liberty Center
The October budget presentation by the Finance Committee forecasted the level of assessments for 2012 of $1,100, or 15% more than what each homeowner is current paying, $960/yr. This will be broken down with a nominal $40 increase in 2011 and a likely $100 increase in 2012. Beyond 2012, nominal increase were also projected. For 2010, President Jack Troia offers a plan to spend all monies that were carry-forward from 2009, totaling $3.4 million, leaving the carry-forward pie in the hole going into 2011.
The annual budget presentation for the year beginning in January occurs each October. The Finance Committee, chaired by Rich Pendleton, together with staff input from RMI, has been working on the budget for several months. That budget not only sets forth the proposed budget to be voted on by the board, but also the level of assessments needed to finance the budget.
Given the approximately $8 million budget’s complexity and the pace of the summary presentation quickly flipping by on the auditorium’s screen, it would be a challenge for anyone to adequately comprehend what they were viewing and listening to, let alone have any basis for formulating relevant questions. While I’m sure the board could if they wished make such information timely available to interested homeowners in some acceptable form, they have chosen not to do so.
At least for me, the most difficult portion of the budget presentation was my failure to understand any justification for an assessment increase for the association from $960 to $1,000. Most likely I just happened to miss the explanation among all the figures and tables that were presented. The bottom line was an apparent shortfall of about $286,000. In order to make up that reported shortfall, the board is assessing an additional $40 per unit owner, i.e., $40 x 7,144 units = $285,760.
The only potential shortfall I could glean was the need to fully fund Liberty Center operating and reserve requirements, initially projected to cost up to a million dollars a year. If that cost materializes, as envisaged by the Finance Committee, that would be equivalent to an increase of $140 a year. By deducting the already board approved $40 increase for 2011 leaves a remaining increase of $100 for 2012, for a projected total assessment of $1,100 annually in 2012.
The board has been fortunate in having available a piggybank of sorts to help in budgeting. The amount in this piggybank arose from the yearly accumulation of excess income over expenses; by 2009 the kitty had grown to over four million dollars. The board could transfer funds they needed for this or that use from that multimillion dollar kitty, the one currently under review by the IRS. The proposed disposition of that kitty was the subject of Jack Troia's tax planning workshop. Click here to view a table outlining the proposed disposition of those funds.
By 2010 the amount in that excess income kitty was down to $3.4 million, still a significant amount. However, according to Jack Troia, that kitty will virtually disappear in 2010, at least on paper. Homeowners are scheduled to receive a portion of that amount, 51%, through the 4th quarter assessment holiday. The other 49% has been allocated primarily to working capital (37.5%) and to capital projects to be performed in 2011 (11.5%). The percentage figures will likely change somewhat upon passage of the final budget.
Of some particular interest, it is evident that Jack Troia had the option of proposing to increase assessments by $140 in 2011, but chose the more politically acceptable option to put that increase over a two-year period, phasing in a nominal $40 increase in 2011 and a $100 increase in 2012. In doing so, however, Jack had a problem. Where would he get the necessary money to fund Liberty Center’s operations in the 2010-2011 period? A $40 increase in 2011 would surely be inadequate. So what did he do?
Going into 2010, Jack had available that $3.4 million kitty to work with. He could have given all of it back to the homeowners but decided instead to keep about half that amount for association business. As noted above Jack proposed to transfer $1.3 million of that excess income into the working capital fund. Such a transfer should free up a corresponding amount for other purposes. One might assume that those other purposes will find their way to support the operations of the Liberty Center.
Whether that $1.3+ million will be utilized for the various purposes described by Mr. Troia in the accompanying chart is speculative since typically those funding needs are ordinarily met from members assessments and various fees. A possible alternate use of those funds could be to act as a safe haven for funds to satisfy a potential IRS liability resulting from the ongoing audit.
So, instead of the homeowners receiving a $180+ check from the association as reimbursement of excess income in 2010, the homeowner’s $1.3 million in excess income was ostensibly used by the association to fund various Sun City Anthem operations. One must assume that the influx of this additional funding from this unexpected source will assist the board in meeting the community's needs, even though that money technically belonged in the pockets of the homeowners.
The sudden disappearance of that available excess income kitty by the end of 2010 can be expected to have some funding consequences going forward.
Ron Johnson, 30 October 2010